Why we must stay silent no longer

Noreena Hertz is one of the world's leading young thinkers, whose agenda-setting new book on corporate power is already sparking intense debate on both sides of the Atlantic. In this remarkable special essay for The Observer she argues that governments' surrender to big business is the deadliest threat facing democracy today

In the hullaballoo following the American presidential election, with hanging and pregnant chads, and ballot forms that needed a PhD to decipher, it was easy to forget something that was in many ways even more alarming than confusion over who won. More than 90 million Americans had not bothered to vote - that is, more than the combined population of England, Ireland and Scandinavia.

Low turnout is not just a US phenomenon. In the UK, the landslide victory for Labour in the election of 1997 was achieved on a turnout of 69 per cent - the lowest since the war. During the European elections in 1999, less than half of the electorate voted, and less than a quarter came out in the UK. In the Leeds Central by-election last year only 19 per cent of those eligible to vote did so. Predictions for the forthcoming general election are that turnout will fall to the lowest level yet.

People have lost faith in politics, because they no longer know what governments are good for. Thanks to the steady withdrawal of the state over the past 20 years from the public sphere, it is corporations, not governments, that increasingly define the public realm.

Unregulated or under-regulated by governments, corporations set the terms of engagement themselves. In the Third World we see a race to the bottom: multinationals pitting developing countries against each other to provide the most advantageous conditions for investment, with no regulation, no red tape, no unions, a blind eye turned to environmental degradation. It's good for profit, but bad for workers and local communities. As corporations go bottom fishing, host governments are left with little alternative but to accept the pickings. Globalisation may deliver liberty, but not fraternity or equality.

At the headquarters of the World Trade Organisation on the banks of Lake Geneva we see rulings being made in the names of the free market that limit states' abilities to safeguard their people's interests. When the European Union tried to ban synthetic hormones from beef on the basis of strong evidence that they could cause cancer, reduce male fertility and in some cases result in the premature onset of puberty in young children, it found itself unable to do so thanks to a WTO ruling which put the interests of Monsanto, the US National Cattlemen's Association, the US Dairy Export Council and the National Milk Producers Federation first.

Time and time again the WTO has intervened to prevent governments from using boycotts or tariffs against companies that they find to be acting in ethically or environmentally unacceptable ways.

In Germany, where revenue from corporate taxes has fallen by 50 per cent over the past 20 years, despite a rise in corporate profits of 90 per cent, a group of companies, including Deutsche Bank, BMW, Daimler-Benz and RWE, the German energy and industrial group, thwarted in 1999 Finance Minister Oskar Lafontaine's attempt to raise the tax burden on German firms, threatening to move investment or factories to other countries if government policy did not suit them. 'It's a question of at least 14,000 jobs,' threatened Dieter Schweer, a spokesman for RWE. 'If the investment position is no longer attractive, we will examine every possibility of switching our investments abroad.' Daimler-Benz proposed relocating to the US; other companies threatened to stop buying government bonds and investing in the German economy.

In view of the power these corporations wield their threats were taken seriously. Within a few months Germany was planning corporate tax cuts which would reduce tax on German companies below US rates. As one of German Chancellor Gerhard Schröder's senior advisers in Washington commented at the time, 'Deutsche Bank and industrial giants like Mercedes are too strong for the elected government in Berlin.'

In the US, the quid pro quo being exacted by George W's corporate backers is becoming all too clear. Since being elected, the President has opened up the Arctic National Wildlife Refuge to oil drillers, retreated from his promises of protecting forests, made moves to weaken the requirement on mining companies to clean after themselves and in recent weeks both reversed a campaign pledge to regulate CO 2 emissions from power plants and trashed the Kyoto treaty on global warming. The interests of the US people suborned to those of the major US energy giants that bank-rolled him: $47 million was all it cost.

Here in the UK public services are increasingly being handed over to private corporations to manage and fund. The Government has already withdrawn from running the railways, soon it'll be withdrawing from air traffic control. Private health insurance is being pushed by the Conservatives as a way of staving off the collapse of our National Health Service. Even the education of our children, once the most sacred preserve of the state, is increasingly delegated to the private sector.

Although it remains too early to see the consequences of the privatisation of public services played out in full, initial indications are troubling. The rail crashes, for which Gerald Corbett, when chief executive of Railtrack, put the blame on the way the railway 'was ripped apart at privatisation'; Angel School in Islington, a primary school now being run by the private company Cambridge Education Authorities, under threat of closure despite the fact that it has constantly improved its educational results, with the parents and staff left with no real means of redress or recourse; Nottingham University's acceptance of £3.8m from British American Tobacco to set up, of all things, a school of corporate social responsibility; and the US model of healthcare proposed as a blueprint for our health reforms, despite the fact that 45 million Americans currently do not have health insurance and 25 per cent of the chronically ill there do not have adequate coverage.

This is the world of the Silent Takeover, a world in which governments can no longer be relied on to protect the people's interests. Blinded by the allure of the market, they now put corporate interests first.

So it is left to us, through individual action, to take the lead. In a world in which power increasingly lies in the hands of corporations rather than governments, the most effective way to be political is not to cast one's vote at the ballot box but to do so at the supermarket or at a shareholders' meeting.

Because, when provoked, corporations respond. While governments dithered about the health value of GM foods, supermarkets faced with consumer unrest pulled the products off their shelves overnight. While nations spoke about ethical foreign policy, corporations pulled out of Burma rather than risk censure by customers. George W may have backed down on his campaign pledges to limit CO 2 emissions, but BP, a corporation, continues to spearhead their reduction. And when stories broke over the world of children sewing footballs for Reebok for a pittance, what did governments do? Nothing. But the corporation, fearing a consumer boycott, stepped in with innovative plans for dealing with the child labour problem.

Delivering a quality product at a reasonable cost is not all that is now demanded of corporations. The key to consumer satisfaction is not only how well a company treats its customers, but increasingly whether it is perceived as taking its responsibilities to society seriously. People are demanding that corporations deliver in a way that governments can't or won't.

It is not just the brown-rice-eating, sandal-wearing brigade who are making demands: 60 per cent of UK consumers are prepared to boycott stores or products because they are concerned about their ethical standards. Three-quarters of British consumers would choose a product on green or ethical issues. More than 75 per cent of Americans would boycott stores selling goods produced in sweatshops. Monsanto was brought to its knees by a coalition of eco-warriors and Britain's Women's Institute members. In America, the Interfaith Centre on Corporate Responsibility, with $110 billion at its disposal, is among the ethical investors now using shareholder power to 'regulate' corporate manoeuvres and get corporations to do good.

Can we entrust the public interest to consumer and shareholder activists? Can shopping adequately replace voting? No, it cannot. The world cannot be simplified to the extent that consumer politics tends to demand. Is GM food necessarily always bad for consumers or the environment? Or could this technology be harnessed for good? Child labour may be distasteful to Western expectations, but does boycotting goods made with child labour improve or exacerbate the lot of Third World children?

Trusting the market to regulate may not ultimately be in our interest. Moreover, populist politics can easily result in tyranny, not necessarily of the majority, but by those who can protest most effectively. Rather than empowering all, consumer and shareholder activism give greatest voice to those with the most money in their pockets, those with the greatest purchasing power, those who can switch from seller to seller with relative ease. Consumer and shareholder activism is a form of protest that favours the middle classes and the outpouring of dissatisfaction of the bourgeoisie.

Nor should the takeover by corporations of governments' responsibilities be viewed as a reason for governments to withdraw. Despite the roles corporations are beginning to play in the social sphere, despite the fact that they may be able to play some role in alleviating poverty and inequity and protecting the environment, social investment and social justice will never become their core activity. Their contribution to society's needs will always remain at the margins. Corporate social responsibility cannot be thought of as a reasonable proxy for state responsibility.

In Japan's Mitsubishi Villages, Nissan Towns, and Toyota Cities the Japanese keiratsus - trading companies - used to provide school vouchers, housing, and health care. In the wake of the Asian financial crisis, the firms are withdrawing support from the community. The head of Toshiba says that they are no longer 'a charity': entire communities are suffering. The suicide rate in Japan rose by a third between 1997 and 1999, a testament to the social strain.

As more and more of the public realm is handed over to the private sector to manage, we need to see the Japanese case as a cautionary tale. If this move by Western corporations towards greater responsibility and care is predicated solely on the continuing strength of the global economy, on the fact that philanthropic acts are essentially tax write-offs against balance sheets firmly in the black, is it not likely to be reversed when times once again become difficult? Companies will simply not be able to justify staying involved to their shareholders, unless they calculate that withdrawal from their social commitments will be so damaging to their reputation as to be more costly than maintaining them. The corporate provision of welfare risks dependence on the continued generation of profits.

We must also ask ourselves whether a price will be exacted for acts of corporate benevolence. Today Microsoft puts computers in our schools; will it tomorrow determine what our children learn? When Mike Cameron, a 19-year-old student, turned up at Greenbriar High School in Evans Georgia on official 'Coke Day' wearing a T-shirt with a Pepsi logo he was suspended. Channel One Network is now notorious for having provided 12,000 American schools with money and goods in exchange for beaming their commercials directly into the classroom. But do we want to live in a world in which commercialisation takes advantage of shortages in funding and rides on the back of children's' learning? This is not about ethics, this is about business. Sometimes the two will coincide, but clearly not always.

Corporations are not society's custodians: they are commercial entities that act in the pursuit of profit, not ethical considerations. They are morally ambivalent. Often their business interests happen to coincide with society's, but this is by no means always the case. Governments on the other hand are supposed to respond to citizens. Downgrading the role of the state in favour of corporate activism threatens to make societal improvements dependent on the creation of profit. And governments that stand back while corporations take over, without being willing to set the terms of engagement or retain the upper hand, are in danger of losing the support of the people, whose feeling of lack of recourse or representation is showing itself in a wave of protest that goes beyond individual acts of consumer and shareholder dissent.

Take the 40,000 Frenchmen who gathered outside the trial of French farmer José Bové or Granny D, the 91-year-old American great-grandmother who walked across America to protest against the relationship between big business and politics and was greeted by thousands upon her arrival at Washington DC or the Seattle Prague and May Day rioters that we saw on our television screens last year - all are examples of a global uprising of people who now see themselves as politically disposed.

All over the world, people are beginning to lash out against corporations, governments and international organisations alike. In a world in which politicians now all sing from the same hymn sheet, people who want to change the hymn have to go outside the church.

But like consumer and shareholder activism, other forms of protest should not be idealised. Their limitations are clear. The commonality of interests often centres on a shared general disillusionment, rather than specific concerns or proffered solutions. In some cases protesters are motivated by a sense of common good, but in others they are concerned only with safeguarding their own interests, or those of a limited group as in the British fuel protests of autumn 2000.

Pressure groups need to play to the media, which encourages posturing, the demonisation of 'enemies', a massive oversimplification of issues and the choosing of fashionable rather than difficult causes to champion. Issues such as forest biodiversity, nitrate leaching or soil erosion in Africa hardly ever get a look in. And, as one of London's May Day protesters told me: 'There has to be trouble, otherwise the papers won't report it.'

But despite the limitations of protest, despite its failure to balance effective means with democratic ends, despite the fact that it can never by itself be a long-term solution, the crucial question is whether protest can change politics in the same way as it is beginning to change the corporate agenda. Can protest put the people back into the forefront of politics?

There are signs that perhaps it can, and that perhaps the political corpse is beginning to twitch. In June of 1999 in Cochabamba, Bolivia's third largest city, the water authority was privatised, following recommendations from the World Bank. At once the price of water tripled, which meant that a typical worker was spending almost a quarter of his or her monthly wage on water charges. People gathered on the streets and protested, there was a four-day general strike, bill payment was boycotted, and 30,000 people marched through the city centre in anger. Finally, in April 2000, the privatisation of the water supply was revoked. Back in 1985, government leaders had asked the Bolivian people for patience and sacrifice as it implemented neo-liberal reforms. Fifteen years later, it seemed that their patience had run out.

In New Zealand, a country that embraced free market fundamentalism with enthusiasm in the early 1980s, the new Labour administration is implementing changes that for the past 20 years would have been considered heretical. Workplace accident insurance has been renationalised, a state-run People's Bank will open soon in which personal banking fees will be 20 to 30 per cent lower than those charged by private banks, tax cuts for high earners have been reversed and trade union rights boosted. As Prime Minister Helen Clark has said, New Zealand's experiment in market fundamentalism has failed.

In the US we are also seeing the beginnings of a turnaround. Prompted by the complete failure of California's privately owned power distributors to deliver electricity at a fair price to citizens, or often to deliver it at all, and experiencing their first state-wide blackouts since the Second World War, Californian politicians are contemplating a once unthinkable change of course: to regain control of the very transmission system that the state privatised five years ago. Even Ronald Reaganland is breaking with its past.

Small signs, it is true, and for now focused on renationalisation rather than issues of global concern, but they represent cracks in an ideology that had become hegemonic over the past 20 years, the beginnings of a recognition that there has to be new thinking.

But while in faraway lands the unthinkable is being thought, here at home do we have any signs that politicians are questioning their certainty that the private sector will be our salvation? Any willingness to admit the dangers of this silent takeover, this world in which corporations not governments are increasingly making the rules? No.

Looking at the choices on offer at the forthcoming election, we see all too clearly the extent of the political consensus. A reduced state, with an ever greater dependence on corporations for solutions, has become the standard line touted by all parties.

As far back as 1968, Margaret Thatcher said in a famous speech: 'There are dangers in consensus: it could be an attempt to satisfy people holding no particular views about anything. No great party can survive except on the basis of firm beliefs about what it wants to do.' The irony is that by buying so wholeheartedly into the form of capitalism initiated by Thatcher and Reagan, British politics has fallen into this very trap, leaving us the electorate increasingly alienated from and distrustful of politics, and providing us with little alternative but to protest rather than vote. Until the Government regains the trust of the electorate, the people will continue to scorn democracy. Until the state reclaims the people, the people will not reclaim the state.

 Noreena Hertz is the Associate Director of the Centre for International Business and Management at the Judge Institute of Management Studies, University of Cambridge. Now aged 33, she graduated from University College, London, with a degree in philosophy and economics in 1987, when she was 19, before taking an MBA at the Wharton School of the University of Pennsylvania. Dr Hertz then moved to St Petersburg to help set up the city's stock exchange and help tutor Boris Yeltsin's advisers in market economics following the overthrow of communism. Returning to Britain, she completed her PhD at Cambridge and, in 1996, then went to the Middle East to head a team of 40 researchers developing the role that the private sector might play in the peace process.

Dr Hertz's book The Silent Takeover: Global Capitalism and the Death of Democracy, is published by Heinemann at £12.99. The accompanying Channel 4 film, The End of Politics will be broadcast as the curtain raiser to Channel 4's general election coverage.